M&A deal ‘frenzy’ set to increase in 2022

M&A deal ‘frenzy’ set to increase in 2022

30 November 2021 By Lauren Croft
Sandy Mak

As the Australian M&A market has experienced a boom in FY21, a new report has shown it has no signs of slowing down next year.

Current conditions are “paving the way” for another busy year for M&A deals, according to Corrs Chambers Westgarth’s M&A 2022 Outlook report. Released on Tuesday (30 November), it has revealed that despite ongoing COVID-19 disruptions, investor optimism coupled with low-interest rates and significant amounts of deployable capital has bolstered deal activity in 2021.

Moreover, the report predicts deal activity will remain elevated for the majority of 2022, with fierce competition and high premiums set to continue and technology and infrastructure sectors to become increasingly important. The Australian market has experienced a 35 per cent increase in the number of public market deals closed in 2021 compared to last year. In addition, the average deal value has also significantly increased, sitting over 70 per cent higher than last year and is the highest average deal value recorded in Corrs’ annual M&A Outlook to date.

The research, which draws on data taken from the Corrs’ proprietary database of transactions, combined with in-depth research for the 12-month period ending 30 September 2021, also shows that deal success rates are back to almost 80 per cent, returning to pre-COVID levels.

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According to the report, “the growing emphasis on environmental, social and governance (ESG) matters, which has caused many businesses to re‑examine their strategies and business models, meaning some companies are deciding to divest unwanted assets while others need to make acquisitions to achieve their new strategic goals.”

The weight of money held by financial sponsors, which continues to rise as superannuation funds continue to grow through mandatory contributions and private equity firms undertake new funding rounds,” it stated.

Corrs’ head of corporate Sandy Mak said that “2021 has been an outstanding year for Australian M&A, with a string of large-scale deals outpacing previous cycles. Amidst the deal frenzy, prices have skyrocketed to the highest average deal value in our M&A Outlook history.”

“We expect heightened deal activity and boosted premiums to continue into 2022. This trajectory is likely to continue until there is an interest rate rise and until cashed-up financial sponsors allocate their spare capital, which will most likely be in the healthcare, technology and infrastructure sectors.

“We also anticipate the regulators, in particular FIRB, to remain highly active next year and for environmental, social and governance factors to increasingly influence deal dynamics as pressure from investors and regulators mounts.”

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Furthermore, the report predicts that the high level of deals will continue “until there is an increase in interest rates and yields in other asset classes begin to rise”.

“In the coming year, we expect the drivers of M&A activity in the infrastructure and technology sectors to continue. The lack of remaining high quality listed infrastructure assets will drive up competition and bid premiums in that sector,” it stated.

M&A deal ‘frenzy’ set to increase in 2022
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